Five-year fixed-rate mortgage rates have risen above 6 percent, adding further pain to borrowers and further fueling claims that banks are “profiting” as savers are left with meager returns.
The average rate on five-year deals is now the highest since November at 6.01 percent, according to figures from the financial website Moneyfacts.
For two-year deals, it reached 6.47 percent.
But savers who put money in an easily accessible account — just in case they need the money for a rainy day — only get 2.45 percent on average, rising to 4.8 percent if the money is put away for a year.
That disparity has fueled ministers’ criticism of the banks – prompting the Financial Conduct Authority to call for chief executives for a confrontation at the regulator’s headquarters on Thursday.
Five-year fixed-rate mortgage rates have risen above 6 percent, adding further pain to borrowers and further fueling claims that banks are ‘profiting’ as savers are left with meager returns
Chancellor Jeremy Hunt (pictured outside 10 Downing Street on Tuesday) said today the FCA had its ‘full support to ensure banks pass on better rates as they should’
Chancellor Jeremy Hunt said today that the FCA had his “full support in making sure banks pass on better rates as they should be”.
Banks benefit from greater profit margins as the gap between the rates they charge borrowers and the rates they pay depositors widens.
Government minister Johnny Mercer told Sky News: ‘You don’t want to see this kind of profiteering, especially when life is very difficult for people right now around interest rates.
“It doesn’t sound right and I suspect the Treasury will look into it today.”
Asked whether the banks’ behavior amounted to profiteering, the prime minister’s official spokesman said: “It’s something the regulator is looking at.”
The FCA was due to report at the end of July on the behavior of banks towards savers.
Treasury committee MPs have been investigating lenders for months, accusing them in a new broadside today of “blatant profit-seeking” and failing to fulfill their “social duty” to encourage savings.
Mortgage rates have not been this high since the market turmoil last fall following Liz Truss’ disastrous mini budget.
Since then they began to ease, but are now rising again as the Bank of England tries to tame stubbornly high inflation.
The bank’s benchmark interest rate is now at 5 percent and financial markets are betting it will reach 6.25 percent in the coming months.
Those expectations result in rising ‘swap’ rates in the financial markets – used as a basis for mortgage prices.
In response, banks have made efforts to withdraw their cheapest mortgage offers and rising rates.
It means that as homeowners’ fixed interest rates — which have generally agreed on much lower rates than are currently available — come to an end, they’ll face a financial crisis.
That will affect 800,000 mortgage holders in the rest of this year and 1.6 million in 2024.
They face paying hundreds of pounds a month more when they take out new mortgage deals.
Myron Jobson, senior personal finance analyst at Interactive Investor, said: “The sudden rise in mortgage rates is shocking to borrowers, and the latest uptick is fueling even more mortgage woes.
“It is a hard blow to the approximately 800,000 households with a fixed-rate mortgage agreement that expires in the second half of this year.
Higher mortgage rates mean that borrowers have to pay more interest over the life of their loan.
“This translates into higher monthly mortgage payments that would weigh heavily on homeowners who are already struggling to fight the inflationary beast in other areas of spending, such as food bills.”
Mortgage rates haven’t been this high since the market turmoil last fall following Liz Truss’s disastrous mini-budget
Paul Welch, chief executive at London-based broker LargeMortgageLoans.com, said that with no signs of inflation easing, “rates will continue to rise.”
“I’m not pleased to say that we can realistically see some flat rates hit 7 percent before the summer is over,” Mr. Welch said.
Last month Mr. Hunt negotiated a new “mortgage charter” with banks, which cover 85 percent of the market, and intended to help those struggling to pay.
It allows borrowers to switch to interest-only deals for six months or extend the term of their mortgage to reduce monthly payments.
Banks have also agreed to give distressed homeowners at least a year from their first missed payment before repossessing their homes.
Sam Richardson, deputy editor of Which? Money, said: “Many people with mortgages will be very concerned about mortgages with an average five-year term of more than 6 per cent, so the regulator needs to make sure banks are meeting their responsibilities to help people who may be struggling to get into to stay. payments.
The Financial Conduct Authority is right to reel banks in amid claims they are profiting from rising mortgage rates without passing higher interest rates on to depositors.
“Banks have not been good enough at passing interest rate hikes on to savers, so the regulator needs to hold them to high standards and crack down on companies that continue to meet the required standards for offering fair value products.”
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